You have until April 16 to make an alternative, manual selection of your preference.
What Changed?
In an email to investors this morning, Vinovest informed users of two new features coming to the platform. They’re two sides of the same coin though. The new capability allows investors to configure either a Buy-and-Hold or Active Rebalancing portfolio strategy.
The two strategies appear to be what you’d expected based on their naming. In the case of Buy-and-Hold, wines purchased in your managed Vinovest account will be held until maturity. For Active Rebalancing portfolios, Vinovest may occasionally sell and purchase different wines from your account to bring the portfolio in line with its target diversification level or investment time horizon.
Why Is This Significant?
On the surface, it really isn’t. However, there may be more to it than first meets the eye.
First, everyone is going to be automatically enrolled into the Active Rebalancing option, unless they manually select Buy-and-Hold prior to April 16. That’s less than 1 week to make a change if you don’t like the upcoming default.
Also, this is a permanent option. If you are on vacation and miss the email or if you decide later on that you want something different, tough luck. You’re locked into it forever. Yikes.
Second, it will absolutely have tax implications. As part of rebalancing, Vinovest is going to be selling wines from managed portfolios. That could mean paying capital gains taxes on your investments every year, on top of the platform’s existing fees. It is worth noting though that the company does say they’ll factor in tax implications into their rebalancing decisions.
Also, it is not 100% clear to me if there will be any potential fees for the sales of the wine that occur during rebalancing. I have reached out to their support team for clarification.
Third, both options appear to authorize Vinovest to sell wine on your behalf without further permission or consultation.
This may not be entirely new – there are already similar stories on social media in cases of non-payment of fees. However, it feels a lot more explicit now. For some that may just enable an even more passive investing experience, but for others it may be a realization that they have less control than they previously expected.
Fourth, Vinovest can’t really say when, why, or how often Active Rebalancing portfolios will be updated. Potential criteria even include new tariffs and a change of ownership of a vineyard.
On one hand, it’s nice that they’re looking out for these things. Keeping track of something like international tariffs and how that maps to a wine portfolio is something that I imagine many people would overlook. However, the unpredictability of it all (especially with potential tax implications) may be unsettling.
Fifth, does an Active Rebalancing portfolio increase lock-in to the platform?
Imagine investing $10K on the platform under the old system. You can put more capital in later, but the wines can just be held to maturity and sold. If you want, you can stop putting in new capital and just let everything age and liquidate. Simple.
For Active Rebalancing, they’ll rebalance to move you closer to your target time horizon. Imagine you have a configuration of a long-term time horizon of ~10 years. In the Buy-And-Hold configuration if you put money in and wait for 2 years, all of those assets should have around 8 years left until they can be liquidated at maturity. However, for Active Rebalancing, it seems like Vinovest will keep selling those wines as they age in an attempt to keep the portfolio stocked with assets that have closer to 10 years left until maturity.
Sixth, and lastly, why the rush? Giving people only 5 days to make an irreversible decision after a short email and a few FAQs just doesn’t feel good.
I should be careful with speculation, but it sure feels like they’re doing this in reaction to something that’s already happened, or in anticipation of something they see coming soon. If that is true, giving the additional context to investors would be helpful.
Vinovest responds
Update from April 12: In a discussion on Reddit, Vinovest’s official account responded with more details behind the new setting and their reasoning behind the change:
– Vinovest’s Official Reddit Account (post link)
- We’ve been running the active strategy on a subset of users for the last few quarters with positive feedback. We know that a sample is not necessarily directly representative of the entire client base, but we felt confident enough that this would be something that would benefit the vast majority of users.
- While we are not anticipating any sort of large negative event in the near future, we would like to be prepared to protect our users in case of future events. Our examples of tariffs and wineries changing ownership serve as previous situations in which we could’ve delivered users better risk adjusted returns had we’d been able to actively rebalance.
- Building off of the previous point, the Chinese tariffs on Australian wine were a good learning lesson. A wine like Penfold’s Grange 2015 is certainly very desirable, and has a lot of room to age until it reaches its maturity. However, the tariff environment significantly caps its upside of that wine given that China is the largest consumption market of Australian wine in the world.
- While we don’t have substantial live data yet, our belief is that of the long run, we will be able to deliver stronger risk adjusted returns on this new strategy. Better returns for the most part equate to happier users. Our team will put out a white paper with findings and analysis in the future when we have a few more quarters of live data under our belts.
